The first round of the French elections is over and now that it’s a head to head match between Macron and Le Pen the markets could refocus their attention on the ECB’s next move – at least until the second round in two weeks. The ECB’s policy meeting this week could shake up markets if Draghi were to talk about what the ECB is planning to do next when it comes to its QE program. And in the U.S. besides trying to figure out what kind of fiscal stimulus – if at all – the Trump administration will be able to pass, the markets will also look at the upcoming economic data that will be released this week including GDP figures for Q1. For gold and silver, any more indications that the U.S. economy isn’t progressing at a smooth and steady pace could push their prices higher.
Following the first-round French elections results, in which, as expected, Le Pen and Macron advanced to the second round, the markets experienced a rally; as a result of this risk-on mode shift, gold and silver took a hit. And if this trend were to continue throughout the rest of the week this could mean more downward pressure for bullion prices. But for now, the French elections will take the back seat until the second round. And let’s look at monetary policy in the U.S. and Europe and how they could move precious metals.
When it comes to the Fed’s rate hike path, the markets will look into the upcoming economic reports that will be released this week including consumer confidence, durable goods, and preliminary GDP report for Q1. By the end of last week, the implied probability for a June rate hike has bounced back to 53%; and the chances of two more hikes by December are 40%. The GDP report, which will lead the way in moving markets, is currently expected to come at 1.3%; GDPnow shows the growth during Q1 was only 0.5%. So, if the actual report comes lower than expected, this could reduce the risk-on mode and send further up gold and silver prices.
Back in Europe, now that the risk around the French elections has subsided, for now, this also means the ECB may start considering the first phase of its exit strategy from the current balance sheet expansion, i.e. when and how to stop purchasing bonds. Current estimates are for the purchase program to end by the end of this year. And in this week’s ECB rate decision, Mario Draghi may start proving some insight as to how and more importantly when will the QE program end. If Draghi’s remarks were to be considered as hawkish, this could push up the Euro, which may also positively affect gold and silver prices – via the weaker dollar.
Finally, we should also point out to the global political climate including the concerns over a government shutdown in the U.S. over budget talks, tensions in North Korea and the second round of the French elections to name just of few (rule of three, right?). These issues are likely to keep dominating the news and could bring the recent risk-on rally to a halt and push back up gold and silver prices. So it’s also good to pay attention to how these and other political stories unfold and how they could affect the market sentiment.
The bullion markets have experienced a correction following the French election results. But for this downward trend to continue, the ECB will have to maintain its dovish stands and not drop any hints of when and how will the QE program end. And in the U.S. the economic data will need to beat current estimates. Otherwise the recent risk-on sentiment could promptly change and may result in a recovery of gold and silver.
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